The new norms will come into effect from July 1, 2023, the government said. This change would make it more expensive for individuals to invest in foreign instruments like stocks, mutual funds, properties, cryptocurrencies, and more. Earlier, the tax rate for this was 5% for all remittances crossing the Rs 7 lakh threshold. After the proposed change, there will not be any upper or lower limit for taxation, all transactions will attract a TCS of 20%

What is the meaning of TCS (Tax Collected at Source):

Tax Collected at Source (TCS) is an income tax, collected by the seller of specified goods, from the buyer. TCS is a concept where a person selling specific items is liable to collect tax from a buyer at a prescribed rate and deposit the same with the Government. Under the Liberalised Remittance Scheme (LRS), the Bank is required to collect TCS at the rate of 5% on the aggregate remittance amount exceeding Rs. 7 lakhs during a Financial Year before Budget 2023.

Despite the TCS being creditable in the hands of taxpayers, the same shall lead to higher cash outflow at the first instance in the hands of taxpayers, according to Deloitte India Partner Neeru Ahuja's quote to the Economic Times. Is there some planning possible around this? Sure. For instance, people may want to remit money in February and March and then claim back the monies with their tax filings, thus reducing the timeline for which the money is kept with the Government. Another could be to explore ways to net off these amounts against payables if it is allowed.

This is a new development, and as time rolls on, we will know more about the pros and cons.